BIMCO sees ‘tough’ 2019 for long-haul container trade

Analyst predicts a slowdown in U.S. containerized imports and continuing shift to to East Coast ports.    Peter Sand, the chief shipping analyst at BIMCO, says, “The long-haul main lane trades, which are critical for the overall health of the container shipping market, are in for what could become a tough year with several pitfalls.”
   In his market analysis for 2019, Sand points to two trends of concern:
   The first is “trade tensions between the U.S. on one side and China and Europe on the other.” He notes that lower demand on long-haul routes from Asia to the U.S. and Asia to Europe are also likely to impact intra-Asia services as well.
   “The shipping industry feels the impact of this trade war, especially in the dry bulk market,” he says. While there were high container volumes in the eastbound transpacific trade lane in the fourth quarter of 2018, “this is unlikely to continue into 2019, given that companies have filled up their inventories and there is uncertainty over future tariffs.”
   A second trend is what he sees as “a tendency for traditional consumers of containerized goods in the West to show signs of being ‘saturated’ — at least in Europe it seems. If this tendency is here to stay, very real problems will prompt liners to rethink their strategy — not just cause, yet another update of the network.”
   Sand notes the International Monetary Fund (IMF) is forecasting economic growth of 3.5 percent in 2019 and 3.6 percent in 2020, slower than the 3.7 percent in 2018. He adds, “The slowdown will affect both advanced and emerging economies.”
   Concerning container services to the U.S., Sand says East Coast ports “are now fully equipped with cranes to cater for ultra large containerships. As a result, we saw strong import growth into the U.S. via this route in 2017 (10 percent) and again in 2018 (8 percent). More cargo is likely to follow this trend, away from the more crowded options of the U.S. West Coast. Despite this, BIMCO forecasts overall imports into the U.S. will be lower in 2019 when compared with 2018.”
    He predicts “European containerized imports look likely to be stuck with demand growth of no more than 2 percent for years to come. That means the long hauls into northern and southern Europe, where ultra large containerships are perfectly suited to reap the benefits of economies of scale, will suffer unless cascading is accelerated.”
   Sand says containerships on order for delivery in 2019 include: 19 ships with capacity of 19,000 TEUs or more; 30 ships with capacity for 11,800 to 15,300 TEUs; and 129 ships with a TEU capacity of less than 3,621 TEUs. No ships on order have capacity between 3,621 and 11,800 TEUs. He adds that BIMCO expects a 20 percent “slippage rate,” meaning the delivery of the ships will be delayed to 2020.
   He notes the global capacity of the world’s container fleet is now 22 million TEUs, up from just over 12 million TEUs a decade ago. He says that corresponds to compound annual growth rate of 6 percent, but notes that in recent years the rate of growth has been slower, “one that matched the lower demand growth much better.“
   “As we know, overcapacity is only controlled when demand exceeds supply and a new era of slower fleet growth has been eagerly awaited. At the same time, we cautiously observe a renewed interest in ultra large containerships with orders up from nine units in 2016 to 36 in 2017 and reaching 40 in 2018, plus many sub-3,000-TEU ships. In total, more than 2 million TEUs of new capacity was ordered during 2017-2018.”
   A bright spot, he says, are the north-south container trades where higher growth rates are expected and highlights “South America and imports into Africa as places where volumes — but not so much freight rates — could improve in 2019.”